Lagarde: "World Economy Not Out of Danger Zone"

IMF Blog, February 26, 2012

Source details

Statement date: February 26, 2012.
IMF Managing Director Christine Lagarde: "Although a derailing of the global recovery has been avoided, the world economy is still not out of the danger zone."
Positive developments cited:
- "Derailment of the global recovery, which was a clear and distinct danger a few months ago, has been avoided for now thanks to strong policy measures--in particular those of the European Central Bank--and strengthened governance in the euro area, and reforms and adjustment in countries such as Italy, Spain, and Greece."
- "High frequency indicators also now suggest an uptick in activity, mostly in the United States."
Ongoing risks highlighted:
- "the world economy is still not out of the danger zone"
- Fragile financial systems.
- High public and private debt.
- Higher world oil prices.
- Elevated unemployment: "Of equal concern is unemployment, which is still too high in many countries."

Policy proposal: "we have suggested an increase in IMF lending capacity of US$500 billion, which would be combined with an equally credible, high quality and properly sized firewall at the European level."
Implementation modalities discussed:
- Agreement that an increase in IMF resources "could be done through bilateral borrowing and note purchase agreements."
- Past precedent: "We have used this model before, and we know it can work quickly."
Risk mitigation and safeguards:
- "Clearly the primary safeguard to Fund resources will be, as always, sound economic programs and strong monitoring."
- IMF Executive Board to "assess other risk mitigation policies in due course."
Governance and reform:
- "I welcome G-20 support for completing the 2010 quota reform agreement, and I urge countries to quickly ratify the measures necessary to implement this important agreement."

Next steps and timing:
- "Concrete decisions will await the reassessment by euro area countries of their support facilities, planned for March."
- Many key issues to be reviewed at the International Monetary and Financial Committee´s spring meeting in Washington in April.
- Also to be considered at the next G-20 ministerial meeting "which will take place at roughly the same time, and the G-20 Summit of Heads of State and Government in June."
Urgent call to action: "Until then, it is crucial that countries continue efforts to restore global growth."

Strengthen resilience to further shocks from fragile financial systems and high debt.
Enhance IMF resources and create complementary European-level firewalls.
Use bilateral borrowing and note purchase agreements as rapid means to increase IMF lending capacity.
Maintain "sound economic programs and strong monitoring" as primary safeguards.
Complete and ratify the 2010 quota reform agreement promptly.
Continue reforms and fiscal adjustment in affected countries while addressing high unemployment.

IMF Blog post: "Lagarde: 'World Economy Not Out of Danger Zone'", February 26, 2012.